When sales managers suggest a CRM implementation or CRM upgrade to senior management, they’re often asked whether the investment will yield a good cost-benefit ratio. While sales managers are often skilled at putting a cost-benefit number to sales activities, few have experience calculating the cost-benefit ratio for a fancy piece of software technology.
This lack of knowledge can be dangerous for the long-term health of a CRM system. CFOs typically hold the purse strings for IT spending and few are willing to dole out IT dollars to projects that experience major cost overruns – even if those projects result in higher sales. Because of this, it’s critical for sales managers to understand the metrics by which their CFO measures the financial affect of the CRM application.
The most significant element on the cost side of the equation is the way in which your firm will pay for customization and integration. (The cost of the software and hardware are, by contrast, easily understood because there are few, if any, unknowns.)
Customization and integration typically are performed by a third-party integrator, often called a systems integrator, and not by the software vendor. Most systems integrators charge a fixed price or by billable hours. In nearly every situation, a fixed-price fee structure is preferable to a billable-hours fee structure. The computer industry in general, and the CRM segment in particular, has been plagued by numerous billable-hours projects that go on for years and years until the companies simply run out of interest in the projects, resulting in their cancellation. By contrast, a fixed-price fee structure gives the integrator an incentive to complete the upgrade in a timely manner because delays cost the integrator money.
With a fixed-price fee structure, however, you can end up paying a premium price for integration services that are fairly standard and cost the integrator few resources. The way to avoid spending too much is to negotiate the fixed price only after you and your IT manager figure out how much work actually needs to be done.
On the benefits side of the equation, the challenge is the quantification of what generally are considered intangible benefits, such as customer retention. To help with this, consider working with your CRM vendor or an independent analyst to estimate how much savings can be derived from a proposed CRM solution.
Another common mistake is measuring cost and benefits only at the start of a CRM project. Forrester Research, a market research firm, estimates that more than 70% of companies don’t measure benefits after a CRM project has been implemented. Inconsistent measuring can be bad news for sales management because the ongoing support costs for the CRM system continue to accrue, which makes sales management look foolish if they can’t communicate how the CRM system is helping sales.
The above is based on a conversation with Tom Pisello, CEO of Alinean, LLC, an Orlando, Florida-based company that helps companies estimate return on investment for CRM systems.